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South San Francisco, California-based Five Prime Therapeutics, Inc. (NASDAQ:FPRX) is a clinical-stage biotechnology company focused on discovering and developing novel protein therapeutics for cancer and inflammatory diseases. Five Prime has developed a library of more than 5,600 human extracellular proteins. This $300M market cap company screens this comprehensive library with its proprietary high-throughput protein screening technologies to identify new targets for protein therapeutics.

Since the introduction of the first protein therapeutic, recombinant human insulin, over 25 years ago. protein therapeutics have grown into a major new class of pharmaceuticals. There are more than 100 genuine and a similar number of modified therapeutic proteins approved for clinical use in the United States and European Union and with 2010 sales of $108 billion.

In addition to building is own pipeline, Five Prime's drug discovery platform has generated over $220 million from collaborations with partners, including GlaxoSmithKline (NYSE:GSK) and UCB Pharma.

Is investing in Five Prime Therapeutics a wise investment?

In Brief/Pro & Con

Pro

  • The company has built a library comprised of more than 5,600 human extracellular proteins, which Five Prime believes represents virtually all of the body's medically important targets for protein therapeutics.
  • Building on its expertise in protein science, Five Prime has developed a proprietary high-throughput protein screening technologies that it uses to identify new targets for protein therapeutics in relatively short periods of time. As a result, it has built a pipeline of novel product candidates for cancer and inflammatory diseases.
  • Five Prime is successfully pursuing discovery and clinical development of its product candidates both independently and in collaboration with pharmaceutical partners. The company has received more than $220 million under collaboration arrangements, with potential for additional milestone and royalty payments, enabling it to bolster the capital resources needed to build a strong pipeline.
  • Analysts are very optimistic about Five Prime. Both Guggenheim and Jefferies has given the stock a Buy rating and $20 price target. BMO Capital gave Five Prime an Outperform rating and $25 price target. Wells Fargo also gave Five Prime an Outperform rating. Wells Fargo's price target for Five Prime stock is $18.

Con

  • Investing in micro-cap stocks is always risky. Five Prime has a low $300M market capitalization. All investments involve risk, but investing in micro-cap companies like Five Prime is especially risky. These stocks are often extremely volatile, may be illiquid, and are often subject to manipulation.
  • Five Prime has incurred substantial operating losses in every year since its inception in 2002, with the exception of the fiscal year ended 2011 due to collaboration revenues from product candidates under collaboration agreements with third parties. For the year ended December 31, 2012 and nine months ended September 30, 2013, Five Prime reported a net loss of $27.6 million and $21.6 million, respectively. As of September 30, 2013, the company had an accumulated deficit of $144.3 million.
  • There is no guarantee that Five Prime will develop a successful drug. Even if the company does eventually succeed, it will be a long time before Five Prime will bring a drug to market. Five Prime's most-advanced product candidate, FP-1039, entered Phase 1b clinical development in July 2013, and its other clinical stage drug, FPA008, entered Phase 1 clinical development in October 2013.
  • The development and commercialization of a new drug is highly competitive. If the company is able to bring a drug to market, Five Prime could face competition from generics as well as from such major pharmaceutical and biotechnology companies as Novartis AG (NYSE:NVS), Amgen (NASDAQ:AMGN), AstraZeneca (NYSE:AZN), Eli Lilly (NYSE:LLY), Les Laboratoires Servier, Janssen Pharmaceuticals/Johnson & Johnson, Daiichi Sankyo Co., Ltd./Plexxikon Inc., Bayer (OTCPK:BAYRY), and others.

Recent Business Highlights

  • GlaxoSmithKline Initiated Phase 1b Clinical Trial of FP-1039/GSK3052230. In July 2013, Five Prime's collaborator, GlaxoSmithKline , initiated a three-arm Phase 1b clinical trial of FP-1039/GSK3052230 in combination with chemotherapy in patients with abnormally high levels of FGFR1. Glaxo has dosed patients in two of the arms and continues to activate clinical sites globally.
  • Completed Initial Public Offering. In September 2013, Five Prime completed its initial public offering (NYSEARCA:IPO) of common stock, raising gross proceeds of $71.8 million, before underwriting discounts, commissions and expenses, which included the sale of shares to the underwriters upon the full exercise of their over-allotment option.
  • Initiated Phase 1 Clinical Trial for FPA008. In October 2013, Five Prime completed dosing of the first cohort of healthy volunteer subjects in its Phase 1 clinical trial of FPA008. Five Prime is developing FPA008, its proprietary monoclonal antibody that inhibits colony stimulating factor-1 receptor (CSF1R), to treat patients with inflammatory diseases, including rheumatoid arthritis (NYSE:RA).
  • GlaxoSmithKline Exercised its Right to Further Evaluate Muscle Diseases Targets. In October 2013, Glaxo exercised its right to further evaluate several protein therapeutic targets Five Prime discovered in its muscle diseases discovery collaboration with Glaxo. In connection with Glaxo's election to further evaluate these targets,Glaxo will pay Five Prime a $0.3 million selection fee.
  • Entered into License Agreement with ADC Therapeutics Sarl. In October 2013, Five Prime entered into a license agreement with ADC Therapeutics Sarl (ADCT) of Lausanne, Switzerland, under which Five Prime granted ADC the right to develop and commercialize antibody-drug conjugates incorporating human monoclonal antibodies to an undisclosed protein target.

Upcoming Milestones

  • FP-1039/GSK3052230. GlaxoSmithKline has activated five clinical sites of the approximately 20 planned for its Phase 1b trial. On-going activation of additional sites should allow for acceleration in the rate of patient enrollment in the trial. Five Prime anticipates preliminary data from this trial in the second half of 2014.
  • FPA008. Five Prime expects to complete dosing of the healthy volunteer portion of the Phase 1 clinical trial of FPA008 in the second half of 2014 and progress to dosing in RA patients by the end of 2014. Five Prime anticipates having preliminary healthy volunteer data from this trial by the end of 2014.
  • FPA144. Five Prime continues to perform investigational new drug (NYSE:IND)-enabling activities for FPA144, a monoclonal antibody directed against FGFR2b for gastric cancer, and plans to begin a Phase 1 clinical trial for FPA144 by the end of 2014.

In Depth/Background/Overview

Protein Library

Protein collections are usually generated from gene copies called cDNAs. cDNAs are copies of genes that direct protein production and can be used to reproduce in the laboratory the same protein that is made in the body. However, if one end of the cDNA, called the 5 prime end, is not present, the protein cannot be made. The 5 prime end is the most difficult part of the expressed gene to copy with traditional technology generally available to scientists. Five Prime's proprietary technology was specifically developed to solve this problem by capturing more cDNAs with 5 prime ends intact. Five Prime scientists believe the company's collection of cDNAs is more complete than those collections developed by other companies that were not able to produce the 5 prime end of many genes. Five Prime scientists believe they have been able to make a comprehensive collection of full-length, fully functional proteins that is now the basis of its discovery platform.

Five Prime's proprietary technology was specifically developed to solve the problem of capturing cDNAs with intact 5 prime ends. Five Prime believes its collection of cDNAs is more complete than those collections developed by other companies that were not able to capture the 5 prime end of many genes and its library contains proteins that are full-length, structurally complete and biologically active.

Five Prime has built a protein library that it believes represents substantially all of the human body's medically important targets for protein therapeutics and an abundant source of potential future protein drugs. The company's library is derived from more than 100 distinct human tissues, and comprises more than 5,600 human proteins. This library includes the proteins that form the basis of marketed blockbuster protein drugs, such as Sanofi's (NYSE:SNY) Lantus (insulin glargine), Genentech's/Roche's Herceptin (trastuzumab) and AbbVie's (NYSE:ABBV) Humira (adalimumab). The library also contains thousands of other proteins, including novel protein variants that are not disclosed in the public domain.

The difficulty of producing large numbers of new proteins in a functional form presents a limitation in the discovery of new protein drugs. Five Prime's high-throughput protein production system includes proprietary technologies developed over several years that allow it to produce approximately 2,000 different proteins per week at therapeutically relevant amounts and with a high level of consistency. The company produces the proteins from its library for its cell-based screening system using human cells to best ensure proteins are made in the same correct, functional form in which they are made in the human body. Five Prime's technologies enable it to reliably produce its entire protein library in less than three weeks. In contrast, typical methods producing one or a few proteins at a time would take years to produce a library of this size and would have to be repeated for each target discovery screen.

Proprietary Screens

As Five Prime scientists explain it, "Medically important proteins can take many forms. They can be ligands that are being overproduced by genetically damaged cells and generating uncontrolled cell division. They can stimulate an unmediated, aggressive attack by the immune system that causes excessive inflammation. They can be receptor proteins that are being over-expressed and catalyzing a dangerous surplus of regulatory proteins inside the cell".

Five Prime has developed a suite of screening and characterizing technologies that can identify these medically-relevant proteins without the limitations of traditional protein screening methods.

Cell Based Screens

Five Prime has designed complex cell-based screens that model the fundamental biological processes underlying the disease of interest, and adapt them to be compatible with its protein library. The company has undertaken what it believes to be some of the most complex cell-based screens in high throughput with protein libraries, including screens with rare stem cells and combinations of diseased primary human cell types. Five Prime execute these screens on automated screening systems designed and built in-house and analyzed using software developed by the company. Five Prime scientists have screened each of the proteins in its protein library in screens using approximately 50 different cell types.

Rapid In Vivo Protein Production System (RIPPS)

Five Prime's rapid in vivo protein production system, also known as RIPPS, enables company scientists to produce and test the proteins in the library directly in vivo in virtually any rodent model of disease and in high throughput. RIPPS technology identifies new targets that cannot be easily identified in other ways.

RIPPS avoids the costly and time-consuming process required for conventional in vivo testing of efficacy and safety that includes expression, scale up, purification, characterization and formulation of each protein one at a time. Using RIPPS, Five Prime has identified and validated dozens of new targets and protein drug candidates in rodent models of cancer, inflammatory disorders, muscle disease and other conditions.

Receptor Ligand Matching

Some proteins are referred to as ligands and exert their actions by binding to a receptor on a cell surface. In order to optimally treat some diseases, the identity of both the receptor and the ligand must be known. The company's comprehensive collection of protein ligands and extracellular domains of cell surface receptors provides Five Prime with the ability to identify ligand and receptor pairs. Historically, this information has led to new therapeutic targets by identifying the best target in a disease pathway and has increased the probability of success of drug development by enhancing understanding of the mechanism of action of a therapeutic candidate. One early validation of Five Prime's approach was its discovery of a new cytokine (interleukin 34) and identification of its surface receptor (colony stimulating factor receptor 1). This discovery spurred development of Five Prime's antibody drug candidate FPA008.

Pipeline

Building on its expertise in protein science, Five Prime has not only developed proprietary high-throughput protein screening technologies that it uses to identify new targets for protein therapeutics in relatively short periods of time, but it has also built a pipeline of novel product candidates for cancer and inflammatory diseases.

Five Prime is focused on therapies for cancer and inflammatory diseases for our its pipeline. Three drug candidates have progressed into active or imminent human clinical trials.

FP-1039

Fibroblast growth factors (NYSE:FGF) are a family of 22 related extracellular proteins called ligands. These proteins regulate cell proliferation and survival in humans. They act by binding to and activating FGF receptors (FGFRs). FGFRs are cell surface proteins that transmit growth signals to cells. Certain FGFs promote growth of multiple solid tumors by binding and activating FGFRs. Unlike other therapies that indiscriminately block all FGFs, FP-1039 is designed to only block cancer-promoting FGFs which could result in better tolerability than other known drug candidates targeting the FGF pathway. ADD

In certain tumor types such as some squamous non-small cell lung cancers, head and neck cancers, and breast cancers, too many copies of the gene for FGFR1 are produced, which results in an over-expression of the FGFR1 protein on the surface of the tumor cell. About 50% of the 22 known FGFs can activate FGFR1, leading to increased FGF signaling and cancerous cell growth.

Another function of FGF proteins and their receptors is to mediate the growth of blood vessel tissue. This process, known as angiogenesis, can accelerate the growth of tumors by increasing the supply of oxygen and other nutrients available to the cancer cells.

FP-1039 is a protein drug designed to intervene in the FGF signaling through FGFR1 that stimulates uncontrolled cancer cell growth and angiogenesis in nearby blood vessels. The drug is composed of two components:

1) the portion of the FGFR1 protein that is on the outside of the cell surface (the extracellular portion) that normally binds to FGF ligands, and

2) the Fc region of an antibody, which confers stability to FP-1039 to extend its half-life in the blood.

FP-1039 can bind to FGF ligands circulating in the extracellular space, preventing these signaling proteins from reaching FGFR1 on the surface of nearby tumor cells, where these FGFs would otherwise stimulate cancer cell division and/or angiogenesis. FP-1039 thus has two potential modes of action to prevent tumor growth.

FP-1039 inhibits specific FGFs. Since it binds to most FGFs associated with tumor growth and angiogenesis, it may be able to inhibit the growth of many different kinds of cancers.

FP-1039 does not bind to an FGF called FGF23 that regulates phosphate levels in the blood, this investigative drug does not change phosphate levels in the blood. Other small molecule inhibitors of FGF receptors block the activity of both cancer-associated FGFs and FGF23. These FGF receptors are believed to cause abnormally high phosphate levels in the blood, which may lead to calcification in tissues and blood vessels.

FP-1039 has successfully completed a Phase 1 human clinical safety trial in 39 participants. In this study, researchers found that treatment with FP-1039 in patients with solid tumors was not associated with hyperphosphatemia, retinal detachment, and other side effects associated with other small molecule FGFR inhibitors.

Five Prime believes that FP-1039 will be better tolerated by patients and expects that it could be used in dosages high enough to fully block cancer-promoting FGFs, thus giving it the potential to be safely combined with standard-of-care chemotherapy.

GlaxoSmithKline, has initiated a multi-arm Phase 1b clinical trial in patients with abnormally high levels of FGFR1. This trial will assess FP-1039 (also known as GSK3052230) both as a single agent and in combination with chemotherapy.

Glaxo is responsible for the development and commercialization of FP-1039 in the United States, the European Union and Canada. Five Points has an option to co-promote FP-1039 in the United States.

If FP-1039, were approved for the treatment of squamous non-small cell lung cancer, it could face competition from currently approved and marketed products, including carboplatin, cisplatin, paclitaxel, docetaxel, gemcitabine and Tarceva (erlotinib). Further competition could arise from products currently in development, including several small molecules that act in the same pathway as FP-1039, including Novartis AG's BGJ-398, AstraZeneca plc's AZD-4547, Eli Lilly's -2874455, ArQule Inc.'s (NASDAQ:ARQL) ARQ-087, Les Laboratoires Servier/EOS S.p.A.'s E-3810 and Janssen Pharmaceuticals/Johnson & Johnson's JNJ-42756493. Some of these programs have been advanced further in clinical development than FP-1039 and could receive approval before FP-1039 is approved, if it is approved at all.

FPA-008

Five Prime is developing FPA008, its proprietary monoclonal antibody that inhibits colony stimulating factor-1 receptor (CSF1R), to treat patients with inflammatory diseases, including rheumatoid arthritis .

When abnormally activated, monocytes and macrophages are immune cells that can cause inflammation in diseases such as rheumatoid arthritis. These cells secrete a variety of proteins, including tumor necrosis factor alpha, or TNFa, interleukin-6, or IL-6, and interleukin-1 beta, or IL-1ß, that attract and activate inflammatory cells. Derivatives of these inflammatory cells directly destroy bone tissue in joints.

By conducting a screen of its protein library to identify novel proteins that activate monocytes and macrophages, Five Prime discovered a novel protein target called interleukin 34 ((IL-34)), which is a key regulator of monocyte and macrophage numbers and activity and that is found in inflamed joints of RA patients.

After discovering IL-34, Five Prime scientists utilized the company's protein library and receptor-ligand matching technology to identify its receptor, CSF1R. This receptor is known to be expressed on the surface of monocytes and macrophages. Before the discovery of IL-34, CSF1R was thought to have only one ligand called CSF1. Both CSF1 and IL-34 bind to and activate CSF1R, which promotes the survival and activity of monocytes and macrophages. FPA008 blocks the binding of both CSF1 and IL-34 to CSF1R and thereby inhibits the activity and survival of these cells.

FPA008 is an anti-CSF1R antibody, which Five Prime designed to block the ability of IL-34 and CSF1 to bind to and activate CSF1R. FPA008 reduces the prevalence and activity of monocytes and macrophages that cause disease, and prevents the production and release of inflammatory factors. Five Prime scientists believe that the advantage of this approach in comparison to such drugs as AbbVie Inc.'s Humira (adalimumab) and Genentech's/Roche's (OTCQX:RHHBY) Actemra (tocilizumab), is that the production of multiple deleterious factors is inhibited simultaneously, potentially resulting in better efficacy. They also believe that another advantage of blocking CSF1R is that osteoclats (macrophages that break down bone) is inhibited. FPA008 has the porenrial to not only be superior in reducing inflammation, but it may also directly suppress bone destruction in the joints of patients with inflammatory diseases.

On October 31, 2013, Five Prime announced that the company completed the dosing of the first cohort of healthy volunteer subjects in its Phase 1 clinical trial of FPA008. Five Prime is conducting the clinical trial initially in healthy volunteer subjects in the Netherlands under a Clinical Trial Application (CTA).

"FPA008 offers the potential for an exciting and differentiated approach to the treatment of inflammatory diseases. In nonclinical studies, FPA008 meaningfully reduces the production of multiple inflammatory factors, such as tumor necrosis factor, interleukin-6 and interleukin-1, by activated macrophages and monocytes, and directly inhibits the bone-eroding activity of osteoclasts," said Mark C. Genovese, M.D., Professor of Medicine and Co-Chief of the Division of Immunology and Rheumatology at Stanford University Medical Center. "Despite the number of approved therapies currently available for patients with RA, there remains a pressing need for more effective treatments with novel mechanisms of action."

The Phase 1 clinical trial is a randomized, double-blind, placebo-controlled, single- and multiple-ascending dose study of FPA008 in both healthy volunteers and subjects with active RA. The primary endpoint of the trial is safety, with secondary endpoints including pharmacokinetics (PK) and pharmacodynamics.

Five Prime will conduct the Phase 1 clinical trial in three parts. The first two parts of the Phase 1 will assess single ascending doses (SAD) and then multiple ascending doses (MAD) of FPA008 in healthy volunteer subjects. In the third part of the Phase 1, Five Prime will assess FPA008 versus a placebo control in patients with RA who have active disease. In all three parts of the study, safety, PK, and biomarkers will be assessed.

"With the initiation of this study we now have two biologic products in clinical development in our key therapeutic areas of cancer and inflammation," said Lewis T. "Rusty" Williams, M.D., Ph.D., President and CEO of Five Prime. "FPA008 was engineered based on a discovery that we made using our proprietary human protein library and screening technology to identify a novel cytokine, interleukin-34, and the subsequent identification of its receptor, CSF1R, using our receptor-ligand matching technology."

Five Prime expects to complete dosing of the healthy volunteer portion of the Phase 1 clinical trial of FPA008 in the second half of 2014 and progress to dosing in RA patients by the end of 2014. Five Prime anticipates having preliminary healthy volunteer data from the first two parts of the Phase 1 by the end of 2014.

If FPA008 were approved for the treatment of rheumatoid arthritis, it could face competition from currently approved and marketed products, including AbbVie's Humira , Janssen's/Johnson & Johnson's Remicade (infliximab) and Amgen's Enbrel (etanercept). Further competition could arise from products currently in development, including Daiichi Sankyo Co., Ltd./Plexxikon Inc.'s PLX5622 product candidate and Janssen/Johnson & Johnson's JNJ-40346527, which act in the same pathway as FPA008.

Decision Resources, a research and advisory firms for pharmaceutical and healthcare issues, found that the rheumatoid arthritis drug market will experience modest growth over the next decade as sales increase from $11.1 billion in 2011 to $15.2 billion in 2021 in the United States, France, Germany, Italy, Spain, the United Kingdom and Japan.

FPA144

FPA144 is a monoclonal antibody directed against a form of fibroblast growth factor receptor 2 (FGFR2) known as FGFR2b. When the FGFR2 gene is amplified by cancer cells, the FGFR2b protein is expressed at abnormally high levels on the tumor's surface, which can result in gastric and lower esophageal cancers. Gastric cancer patients that have tumors expressing high levels of FGFR2b have significantly lower survival rates than individuals whose tumors express lower amounts of the receptor protein.

Five Prime believes that FPA144 acts on the tumor cell by preventing the binding of certain FGFs to FGFR2b, and inhibiting their ability to promote the growth of the tumor cells, and once FPA144 binds to FGFR2b proteins on the surface of the tumor cell, it engages cells of the immune system to kill the tumor cell in a process called antibody-dependent cell-mediated cytotoxicity.

Preclinical studies have shown that FPA144 is effective in blocking the growth of gastric cancers that produce abnormally high levels of FGFR2b.

Five Prime plans to initiate a Phase 1 clinical trial for FPA144 in the second half of 2014 in patients with tumors expressing high levels of FGFR2b and expects preliminary data by the end of 2015.

Since there are fewer than 10,000 gastric cancer patients with an abnormally high amplification of the gene that produces the FGFR2b protein, Five Prime believes that FPA144 may qualify for orphan drug status and expedited US Food and Drug Administration (FDA) review. Outside the United States, the prevalence of gastric cancer is believed to be substantially higher. The company plans to use a companion diagnostic test to identify patients with FGFR2 gene-amplified tumors in clinical trials at all stages.

If FPA144 were approved for the treatment of gastric cancer, it could face competition from currently approved and marketed products, including 5-fluorouracil, capecitabine, doxorubicin, cisplatin and docetaxel, all of which are available as generics. Further competition could arise from product candidates currently in development, including AstraZeneca plc's AZD-4547 and Bayer's BAY1179470, an FGFR2 antibody.

The research and advisory firm, Decision Resources, forecasts that the gastric cancer market will experience slow annual growth from 2011 through 2016. However, the market will rapidly expand thereafter, in line with the launch of premium-priced therapies, achieving annual growth of more than 13% percent from 2016 through 2021. Major-market sales will more than double over the next decade, increasing to $2.3 billion in 2021.

GlaxoSmithKline Collaboration

In December 2012, Glaxo selected a protein target for further evaluation under the collaboration agreement. In September 2013, the two companies entered into an agreement to extend by approximately eight months the evaluation period for this protein target. In connection with the extension of the evaluation period, Glaxo agreed to pay a $200,000 extension fee.

On August 3, 2010, Five Prime announced that it had formed a strategic drug discovery alliance with GlaxoSmithKline giving Glaxo exclusive access to Five Prime's drug discovery platforms specifically in the areas of sarcopenia, cachexia and other skeletal muscle disorders.

Under the terms of the agreement, Glaxo has access to Five Prime's proprietary collection of secreted proteins and transmembrane receptor proteins. Five Prime also agreed to conduct high-throughput in vitro and in vivo assays customized to identify potential drug targets and drug candidates for treating skeletal muscle diseases. Glaxo was granted an option to exclusively license each drug target or drug candidate discovered by Five Prime from the collaboration and take on sole responsibility for additional preclinical studies, clinical development, manufacturing and worldwide commercialization.

Five Prime received approximately $15 million in 2010 from an upfront fee, the purchase of Five Prime equity by GSK, and payments related to the research program. In addition, Five Prime is eligible for up to $124 million in potential option exercise fees and milestone payments, as well as tiered royalties on global net sales for each product resulting from a selected drug target or drug candidate.

On April 17, 2012, Five Prime announced that it had entered into its second strategic drug discovery alliance with Glaxo giving the pharmaceutical giant exclusive access to Five Prime's drug discovery platforms in up to six programs to identify first-in-class agents and new mechanisms relevant to refractory asthma and chronic obstructive pulmonary disease (COPD).

Under the terms of the agreement, Glaxo has access to Five Prime's comprehensive, proprietary collection of functional human secreted proteins and transmembrane receptor proteins and Five Prime will apply its technology platforms to identify and validate potential drug targets and drug candidates. Glaxo has an option to exclusively license selected targets discovered by Five Prime in the collaboration. For a majority of licensed targets, Glaxo took on sole responsibility for additional preclinical studies, clinical development, manufacturing and worldwide commercialization of products. For a limited number of GSK-licensed targets, Five Prime would have the opportunity to advance biologic products through human proof-of-mechanism clinical studies, after which Glaxo would have an exclusive option to exclusively license global rights for such products in exchange for enhanced financial payments to Five Prime.

Five Prime is eligible to receive up to $30 million from an upfront fee, the purchase of Five Prime equity by Glaxo, research funding, and option payments related to the research program. In addition, in the event that Glaxo licenses a candidate after FivePrime has developed such a candidate through the proof-of-mechanism stage, Five Prime would be eligible for up to $193.5 million in potential option exercise fees and milestone payments, as well as tiered royalties on global net sales for each product resulting from a selected drug target.

UCB Collaboration

On March 19, 2013, Five Prime and UCB announced that the two companies had entered into a strategic collaboration for the discovery of innovative biologics targets and therapeutics in the areas of fibrosis-related inflammatory diseases and central nervous system (NYSE:CNS) disorders. This collaboration gives UCB exclusive access to Five Prime's drug discovery platforms in up to five programs to identify new targets and disease mechanisms.

Under the terms of the agreement, UCB and Five Prime agreed to collaborate to design assays to screen Five Prime's comprehensive, proprietary library of approximately 5,600 functional secreted proteins and transmembrane receptor proteins (ligand traps). Five Prime will apply its technology platforms to identify potential drug targets and drug candidates in fibrosis-related inflammatory diseases and CNS disorders. UCB has an option to license exclusively rights to selected protein targets discovered by Five Prime in the collaboration.

Five Prime is eligible to receive approximately $16 million from a combination of an upfront fee, technology access fees, research funding and success-based research milestone payments. Five Prime is also eligible for potential option exercise fees and product-related milestone payments, as well as tiered royalties on global net sales on future products related to each licensed protein.

Brussels, Belgium-based UCB is a global biopharmaceutical giant employing 9,000 people in approximately 40 countries. The company generated revenue of EUR 3.4 billion in 2012. UCB is listed on Euronext Brussels.

Finances

On November 12, 2013, Five Prime reported financial results for the third quarter that ended September 30, 2013.

Cash, cash equivalents and marketable securities totaled $86.6 million at September 30, 2013, compared to $38.0 million on December 31, 2012. This increase was primarily driven by the proceeds from Five Prime's initial public offering.

Collaboration revenue for the third quarter of 2013 was $3.5 million compared to $2.9 million in the same period of 2012. This increase was primarily attributed to revenue earned under the fibrosis and CNS collaboration with UCB Pharma S.A.

Research and development expenses were $8.2 million for the third quarter of 2013 compared to $6.5 million for the same period of 2012. This increase was primarily due to advancing FPA008 into Phase 1 clinical development.

General and administrative expenses were $2.6 million in the third quarter of 2013 compared to $2.3 million for the same period of 2102. This increase was primarily due to a $0.1 million increase in intellectual property-related legal fees and $0.2 million for activities related to preparing to become a public company.

Five Prime reported a net loss for the third quarter of 2013 was $7.2 million, or $2.74 per basic and diluted share, compared to a net loss of $5.9 million, or $4.85 per basic and diluted share, for the third quarter of 2012. This increase in net loss was primarily due to increased expenses to advance FPA008 into Phase 1 clinical development.

Five Prime expects full-year 2013 net cash used in operating activities of $28 to $30 million and to end 2013 with $73 to $75 million in cash, cash equivalents and marketable securities.
The company believes that its existing cash and cash equivalents, marketable securities, and funding we expect to receive under existing collaboration agreements, will fund its projected operating requirements into the third quarter of 2015.

Conclusion

Five Prime is a leader in the discovery of innovative protein therapeutics. The company has built a library comprised of more than 5,600 human extracellular proteins, which it believes represents virtually all of the body's medically important targets for protein therapeutics.

Building on its expertise in protein science, Five Prime has developed a proprietary high-throughput protein screening technologies that it uses to identify new targets for protein therapeutics in relatively short periods of time. As a result, it has built a pipeline of novel product candidates for cancer and inflammatory diseases. Five Prime's protein library and screening technologies are valuable assets that a larger pharmaceutical company should want to acquire.

By pursuing discovery and clinical development of its product candidates both independently and in collaboration with larger pharmaceutical partners, Five Prime has received more than $220 million under collaboration arrangements, with potential for additional milestone and royalty payments, enabling it to bolster the capital resources needed to build a strong pipeline.

Since its IPO on September 18, 2013, the company's stock has been volatile. Five Prime stock reached a 52 week low of $8.02 on November 12, 2013 and a 52 week high of $18.54 on January 10, 2014. If one were to wait for a pullback, Five Prime could be a good short term or long term opportunity for the aggressive investor who is not averse to risk.

All investments involve risk, but investing in micro-cap companies like Five Prime is especially risky. These stocks are often extremely volatile, may be illiquid, and are subject to manipulation. The Securities and Exchange Commission (SEC) provides a wealth of information about the dangers of investing in micro-cap companies and penny stocks. You can find it here.

Source: Five Prime Therapeutics: A Small Cap With A Big Protein Therapeutic Platform